California Taxpayers Urged to Report Offshore Bank Income

Released: June 19, 2009

Sacramento – The Franchise Tax Board (FTB) reminds taxpayers
who are filing an amended federal tax return to correctly report income related
to offshore bank accounts or other offshore activity to file an amended return with
California at the same time.

According to the latest statement on
offshore income from IRS Commissioner Doug Shulman, taxpayers may choose to participate
in the IRS’s voluntary disclosure process in order to avoid federal criminal
prosecution. They will need to pay the federal taxes owed, interest, and either
an accuracy or delinquency penalty. In addition, they will also need to pay a penalty
of 20 percent of the highest asset value of their foreign accounts for the tax years
at issue. The IRS provides answers to frequently
asked questions regarding its offshore voluntary disclosure process on its website, www.irs.gov.

The IRS and FTB have agreements to share information between the two agencies,
so information received from federal amended returns and from foreign governments
will ultimately be shared with California authorities.

California residents are taxable on all their worldwide income. In most cases,
income related to offshore bank accounts or offshore activities is taxable by the
state even if it was not taxable for federal purposes. California residents should
review their state tax returns to determine if they need to file amended returns
to report this income. California does not have a penalty similar to the federal
20 percent asset value penalty.

If taxpayers do not timely inform the state when they file federal amended returns
or when the IRS makes a change to their federal tax, FTB has four years to issue
an assessment after the information is provided to FTB. In addition, penalties may
be imposed and interest will accrue.

Taxpayers should use Form 540X, Amended Individual Income Tax Return to make any
changes to previously filed tax returns. Taxpayers can send their amended returns
to: